Arab News

Saudi Arabia could issue $20bn of bonds in regional debt boom, predicts US bank

Valuations are tight for Kuwait, Abu Dhabi and Dubai, which may need to boost borrowing for Expo 2020 in the year ahead

- FRANK KANE

DUBAI: Gulf states are expected to embark on a debt-raising spree in 2018, with Saudi Arabia taking the lion’s share of issuance that could top $50 billion, according to experts in global sovereign credit markets.

Bank of America Merrill Lynch (BoAML), the US investment bank, issued a report advising investors to “expect a busy period of Gulf Co-operation Council issuance,” and that it was expecting “very large issuance” from Saudi Arabia of around $20 billion of bonds.

Although marginally lower than the total raised in 2017, this is higher than many previous estimates of the amount the Kingdom would seek to raise on internatio­nal markets.

A rival US bank, which did not want to be named because it was advising the Saudi government on bond issues, said that it was expecting between $5 and $10 billion in dollar-denominate­d debt in the course of 2018.

Raising debt is a key part of the Kingdom’s strategy to finance its budget deficit, forecast to reach SR328 billion ($87.5 billion) in the recent budget for 2018.

Official estimates then were that 12 percent of the deficit would be covered by debt issuance, which includes domestic debt as well as sovereign debt on global capital markets.

BoAML said in its report that spreads on Saudi debt were wide for its rating category, but were justified by the large amount to be issued. A wide spread usually indicates a riskier investment propositio­n.

Saudi Arabia has been increasing­ly looking to internatio­nal capital markets to help balance the books when lower revenues from oil have hiked the deficit. Last year, the Kingdom raised a total of $21 billion on global markets, and a further $10 billion from domestic issues.

Historical­ly low interest rates have also increased investors’ appetite for bigger debt issuance.

Other GCC countries are also expected to take part in the debt bonanza this year. BoAML said that it was expecting Qatar to raise a total of $10 billion on internatio­nal markets, especially as a $2 billion Eurobond matures this month.

The country has come under pressure as a result of disruption to its financial system from the sanctions imposed on it by Saudi Arabia, Bahrain and Egypt over allegation­s of terrorism funding, and still needs extra internatio­nal investment for infrastruc­ture spending ahead of the FIFA World Cup in 2022.

Valuations of Kuwait and Abu Dhabi debt are tight, as they are in Dubai, which needs to increase borrowing to help pay for projects in the Expo 2020 business exhibition.

Oman is expected to raise $8.5 billion this year, with large volumes of debt in external markets to fund its big budget deficit.

Bahrain, also running a large deficit, will be active in internatio­nal debt markets, BoAML said. “We expect the country to be financiall­y supported by the GCC if it commits to reforms,” the bank added.

 ??  ?? A view shows Saudi Aramco’s Wasit Gas Plant in Saudi Arabia. A successful bond program in 2018 would help gauge the global investor attitude for Saudi assets, which would be a crucial factor in pricing the planned Aramco IPO. (Photo courtesy of Saudi...
A view shows Saudi Aramco’s Wasit Gas Plant in Saudi Arabia. A successful bond program in 2018 would help gauge the global investor attitude for Saudi assets, which would be a crucial factor in pricing the planned Aramco IPO. (Photo courtesy of Saudi...

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